Small businesses want corporate tax reform, but only if it comes with individual tax reform too

Small business owners might not be on board with the corporate tax code reform that the White House is reportedly working on, according to the New York Times, unless it comes along with reforms to the individual tax code as well. According to the Times, this “corporate tax overhaul,” which would be the conclusion of the process begun in January by Treasury Secretary Tim Geithner, “has explored the willingness of business leaders to sacrifice loopholes in return for lowering the top corporate tax rate, currently 35 percent.” That tax rate could be reduced to as low as 26 percent.

“Our members are definitely in support of reforming the tax code,” said Molly Brogan, vice-president of public affairs for the National Small Business Association. But, she added, “doing it at the corporate level doesn’t do a lot for most businesses. You have to reform the individual tax code as well.”

According to the NSBA’s data, 83 percent of small businesses are set up as pass-through entities, meaning that their business income counts as personal income, so “that’s where they pay taxes, at the individual levels,” explained Brogan.

“Without addressing individual incomes and reforming those, you’re going to miss the majority of small businesses,” she said.

The National Association of the Self-Employed echoed her response.

“The thing to keep in mind is general corporate tax reform is fine, but if you want to really effect the small businesses, you need to address the individual income tax reform because that’s what’s going to make a difference,” said spokesperson Kristin Oberlander.

“We just want to make sure that individual tax rates are addressed as well cause, you know, for small business to continue being a growth engine, there needs to be some tax reform.”

Brogan said that without individual reforms, corporate tax reform might even hurt small businesses. Small businesses are permitted to take some credits and deductions, such as Section 179 expensing and bonus depreciation, which allows them to spread out costs or losses over an extended period of time. Since small businesses wouldn’t get the benefit of the lower top corporate tax rate, if they lost those, they would actually end up losing money from the reform.

“[Reform] can’t just be on one side,” concluded Brogan. “It has to be a comprehensive simplification.”

The U.S. Chamber of Commerce declined to comment without knowing further details of the proposed reform.

  • Tess_Comments

    I do not think the governemnt should raise any taxes at this time. However, I do feel the government should close some of the loopholes that allow corportaions to pay $0 in taxes while profits are in the millions of dollars. Keep some of the loopholes but make sure corporations pay at least 20% on profits. Also, I believe ALL subsidies should be cut in half.

  • Scrap Iron

    What’s needed is not reform, but a fundamental transformation, to se the president’s words.
    What we need is the Fair Tax (HR 25).
    EVERYONE will pay tax when they purchase new items as a final consumer.
    the Fair Tax will REPLACE all income taxes, and since most prices (especially domestic products) will remain constant in price, the consumer will have more money to spend.
    The power of taxing moves FROM congress TO “We, the People”.
    What could be better?

    • thephranc

      As long as the rules are written so Congress can’t add heaps of additional taxes like a VAT on top I’d be more for a fair tax.

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  • ojfl

    These facts do not matter. Recall the president is calling these people “millionaires and billionaires” and that these statistics that small businesses pay taxes as personal income is bogus. So while I sympathize with these sentiments and support these changes I am less optimistic that the president and his party would agree to go along with these as it is not politically advantageous and it does not create a boogeyman to fight.